Tesoro is cleared to buy BP's Carson refinery, Arco stations

Tesoro Corp. won federal and state clearance for its purchase of BP's Carson refinery, Arco stations and other assets for $2.4 billion, an acquisition that would further concentrate the state's fuel-making capacity into only two players — Tesoro and Chevron Corp.

The twin actions Friday were immediately blasted by consumer advocates as a disaster for California consumers, who already pay some of the nation's highest gasoline and diesel prices.

Tesoro and Chevron would control more than half of the refining business in California, which the activist groups contend would allow the two companies to influence what customers pay at the pump.

That criticism came despite conditions laid down by California Atty. Gen. Kamala D. Harris that sought to preserve the Arco brand's standing reputation as the low-price leader in the state's gasoline market.

Harris also sought to preserve jobs and protect the environment in the agreement reached with Tesoro.

The San Antonio company said that employees of BP's Carson refinery and Tesoro's smaller Wilmington refinery would have their jobs protected for two years.

Tesoro also agreed to take steps to reduce greenhouse gas and other pollution emissions at the Carson and Wilmington refineries by installing new equipment.

A new distillate desulfurization unit would serve both refineries, replacing older fluid catalytic cracking units used in the refining process. The agreement doesn't contain a deadline for the retrofit, which would cost about $150 million, but Tesoro is expected to provide an annual update on the matter.

"These commitments will protect jobs for potentially thousands of Californians," Harris said, adding that they would also "ensure that California's oil and gas markets remain competitive for years to come, and lead to a reduction in greenhouse gases and emissions."

The Federal Trade Commission also signed off on the deal, without conditions, saying that the continuing drop in gasoline demand in the state was leading to excess fuel-making capacity. That, in turn, constrained the ability of refiners to affect retail fuel prices. The FTC also noted that seven major refiners continue to supply the West Coast.

"These broad trends, along with a detailed analysis of other evidence probative of current and likely future supply and demand conditions, left the Commission without a reason to believe this transaction is likely to substantially lessen competition," the FTC said in a statement.

Harris said her office and the California Energy Commission would monitor market competition by reviewing monthly production volume data for Tesoro's Southern California refineries and its Golden Eagle refinery in Northern California, as well as average monthly prices for gasoline delivered to Tesoro's gas station customers.

But Charles Langley, public advocate for the Utility Consumer Action Network in San Diego, accused regulators of approving an acquisition "that leaves the state with less competition, not more. And the problem in California now is that there was already too little competition."

Consumer Watchdog also condemned the deal as bad for consumers.

"The status quo is $4-per-gallon gasoline, and gasoline price spikes, and all this deal does is protect the status quo, which is unacceptable to consumers," said Liza Tucker, a spokeswoman for the Santa Monica group.

Not everyone agreed that the acquisition would automatically lead to higher prices. Tom Kloza, chief oil analyst for the Oil Price Information Service, said that "this should not have much of an impact on California prices in the short term."

For one thing, Kloza said, Tesoro isn't just buying a refinery; it's also buying a network of Arco gasoline stations that already have a loyal following of customers.

About 38% of the expensive blend of gasoline sold in California is made by Chevron and Arco, owned by British oil giant BP.

The state's total refinery capacity for gasoline is just more than 1.9 million barrels a day.

Once the deal is completed, Tesoro and Chevron Corp. of San Ramon, Calif., will control just more than 1 million barrels a day of the state's gasoline production, or 52.6%.

A gallon of regular gasoline in California on Friday averaged $4.062, according to the AAA Fuel Gauge Report.

Wall Street analysts had a different take on the deal, saying it would vault Tesoro into the upper echelons of the U.S. refinery industry, although it would remain smaller than Valero Corp., the nation's biggest refiner by volume.

"This is a game changing deal for an opportunistic buyer and a motivated seller," said Fadel Gheit, senior oil analyst for Oppenheimer and Co. BP, he said, needs to build cash to help pay fines and compensation for victims of the disastrous 2010 Deepwater Horizon oil spill in the Gulf of Mexico.

Tesoro Chief Executive Greg Goff said the company is pleased "we can close this transformational acquisition as planned."

The transaction, expected to close by June 1, includes about 800 dealer-operated service stations in Southern California, Nevada and Arizona. Combined with Tesoro's existing stations, the company would have a network of about 1,350 service stations in the Southland.

Tesoro stock closed Friday at $62.24, up $4.06, or 7%. The company said the transaction would add about 50 cents a share to 2013 income.